GST Rules and the Mistakes to Avoid While Implementing GST for Your Restaurant Business

The rollout of the GST came as an important landmark in the history of the Tax Reform in India. All the GST rules and regulations are decided by the GST Council. While the GST eliminates multiple taxations and tax cascading and aims to simplify the entire tax process, there is still much to learn about the new tax structure. Read about the Frequently Asked Questions About the GST here.  

The council has put forward a number of rules that must be followed by your restaurant if you want your restaurant to operate without any legal hindrances. There are a few things that you, as a restaurant owner, in all circumstances must avoid to ensure that your restaurant business can go on unobstructed and in a legal manner.

Mistakes to Avoid While Implementing GST for Your Restaurant Business

Below we have listed a few acts that you as a restaurant owner must avoid in order to maintain the status of your restaurant and keep gaining profits out of your business. 

1. Issuing a Fake Invoice

As soon as the GST gets implemented, the importance of correct and accurate invoice will gain a pivotal position. It will be considered as a crime to issue a different and non-related invoice to any party. Providing service without issuing an invoice (which is often done by dishonest restaurant staff to pocket the money) or giving benefits to any person by providing him fake invoice will also come under the category of crime. It will be better to avoid and such kind of practices and to create awareness among your restaurant staffs regarding side effects of such acts under GST to ensure a safe operation of your restaurant business.

2. Failing to Submit your GST to the Government

GST collected from the customers must always be submitted to the government within three months failing which may lead to the criminal case and appropriate actions will be taken against the taxpayer. Failing to provide the government the correct and timely GST will indicate misappropriation, and this will bring your restaurant under the preview of the law and will cause grave harm to the reputation of your restaurant.

3. Giving Wrong Details in the Registration

As well known, the migration process for GST is running across the nation and a dedicated window has been opened for it two times. A third phase of the enrollment window will be available from 25 June. So, in order to register your restaurant business unit under the GST make sure you provide true information regarding your business with all accurate financial details. Never try to present fake financial records to save taxes. As the government has already warned that after the migrations, the data can be scrutinized and if caught, the business unit and the associated taxpayers will be in great trouble. Such a situation will not only attract immense negative publicity for your restaurant but it might as well lead to the closing of your restaurant.

Read a detailed article on how to the get the GST registration of your restaurant business done here

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4. Not Providing Original Documents with the Logistics

According to the newly incorporated GST laws, any sales or services provided without the original documents and invoices being caught in transit will be considered as illegal and will be termed as a crime. Ensure that all your goods are with original documents as a proof in front of inspecting authorities.

Penalties for Not Following the GST Rules

On committing a fraud or on trying to evade the taxes your restaurant might be subjected to some harsh penalties under this new regime of GST. However, GST seems to be considerate enough to take into account whether the mistakes committed by your restaurant are intentional, amounting to fraud, or are they mere mistakes on the part of your restaurant, who is trying desperately to cope up with the technicalities of this new regime. While the penalties for the former are harsh and severe, the penalties for the latter are minimal, giving the small scale restaurants the opportunity to cope up with the changing system.

If your Restaurant Commits a GST Fraud

An offender has to pay a penalty amount of tax evaded/short deducted etc., i.e., 100% penalty, subject to a minimum of Rs. 10,000.

Not only the taxable person but any person who commits the following-

  • Helps any person to commit fraud under GST
  • Acquires/receives any services with full knowledge that it is in violation of GST rules
  • Fails to appear before the tax authority on receiving a summons
  • Fails to issue an invoice according to GST rules
  • Fails to account/vouch any invoice appearing in the books
    Will have to pay a penalty extending up to Rs. 25,000

The scheme of punishment provided in section 132(1) is as follows:

Offense involving–Punishment (Imprisonment extending to–)

Tax evaded exceeding Rs. 5 crore or repeats offender 250 lakh – 5 years and fine

Tax evaded between Rs. 2 crore and Rs.5 crore- 3 years and fine

Tax evaded between Rs.1 crore and Rs.2 crore- 1 years and fine

False records, Obstructing officer, Tamper records – 6 months

In terms of Section 132(4), (5) of CGST/ SGST Act

i) All offenses where the evasion of tax is less than Rs.5 crores shall be non-cognizable and bailable,

ii) All offenses where the evasion of tax exceeds Rs.5 crores shall be cognizable and Non– bailable.

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As already mentioned, GST does take into account, mistakes committed by restaurants which do not amount to fraud. Penalties for such mistakes are very different from the ones where there are frauds which are committed intentionally. For genuine errors, the penalty is 10% of tax. GST also provides the concept of general Penalty, under which any offense under GST for which penalty is not specifically mentioned, will be liable to a penalty extending Rs. 25,000.In case of an Unintentional Fraud

General Rules Regarding Penalty

These rules of penalty are generally the same in all laws whether tax laws or contract or any other law and GST is no different in this regard.

  • Every taxable person, on whom the penalty is imposed, will be served with a show cause notice first and will have a reasonable opportunity of being heard.
  • The tax authority will give an explanation regarding the reason for penalty and the nature of offense
  • When any person who voluntarily discloses a breach of law, the tax authority may use this fact to reduce the penalty

There will not be substantial penalties for minor breaches (tax amount is less than Rs 5000) or errors which are easily rectifiable and clearly made without any motive of fraud. The tax authority may issue a warning in such cases,

This will be beneficial to your restaurant business, where a few genuine mistakes are committed, especially in the first few months of GST implementation. Being penalized for genuine errors will be a hard blow for various small eateries that do not have as many resources as the large restaurant chains or fine dining restaurants have that help them to adapt to GST. 

Hope after reading this, all your queries regarding how to operate your restaurant under GST in a legal manner has been solved and you have gained an insight of what might happen to you and your restaurant; the penalties that you and your restaurant will be subjected to on committing these mistakes. 

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